Top US banks at risk of rating downgrade – Fitch

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Due to the industry’s poor health, Fitch analyst Chris Wolfe warned CNBC on Tuesday that the US banking sector might face a wave of rating downgrades, including for JPMorgan Chase and Bank of America.

According to Wolfe, Fitch downgraded the industry’s “operating environment” in June due to pressure on the country’s credit rating, regulatory loopholes highlighted by regional bank collapses, and interest rate volatility.

According to Wolfe, the move went virtually unnoticed because it did not result in bank downgrades. However, another one-notch drop in the industry’s score, from AA- to A+, would force Fitch to reassess ratings for each of the more than 70 US banks it covers.

“If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions,” he stated, adding that banks cannot be rated higher than the environment in which they operate.

Wolfe would not provide any specifics, such as the timing of a prospective downgrade or its impact on lower-rated companies, saying only, “We’d have some decisions to make, both on an absolute and relative basis.”

The warning comes after Moody’s downgraded 10 small and midsized US banks last week and warned of prospective downgrades for another 17 lenders, including larger institutions. Fitch lowered the US long-term credit rating earlier this month, citing political dysfunction and rising debt loads.